Baroness Hogg: My Lords, I am grateful to the Minister for giving way. Does the noble Lord accept that there is a difference between pamphlets--we can debate who should pay for what; it sounds as though I would be in total agreement--and the Red Book? It is important that the Red Book is kept free from such polemics. My argument related to the extent to which the Red Book had been sliding towards the pamphleteering end of publications. That is a matter about which we should be concerned.

Lord McIntosh of Haringey: My Lords, I listened to the noble Baroness's argument as closely as I read the Red Book. I find the words "sliding towards" somewhat equivocal. I do not think that she indicated satisfactorily that there was obfuscation or any misleading, either intentionally or unintentionally. She said that the real complications were set out later in the volume. I accept that. But I do not think that that is the kind of criticism which has been made, for example, by Mr. David Ruffley.

I should love to take part in a rational taxation debate. I should love to take part in a debate about Laffer curves. I agree very much with what the noble Lord, Lord Dahrendorf, said about it not being taken for granted that low taxation is good or bad, and high taxation bad or good. The question is what it is being used for.

I was also interested in the observations of the noble Lord, Lord Skidelsky, about expectations. He takes expectations over a long period. I hope he will accept that when one comes to a range of possible options between 36 per cent. and 38 or 39 per cent. of GDP, expectations do not come into it. While these are public figures in the sense that everyone is entitled to know them, they are not figures which affect people's view of

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the way in which Government approach matters. They certainly do not justify saying either that the Government are a tax and spend government in disguise or, as the Liberals wish to say, that we are not sufficiently a tax and spend government.

What comes out of the rational debate--I am not capable of taking part in it at an academic level--is that we have a perception by ordinary people, and will do so over the next year, of lower taxes being paid: a 10 per cent. starting rate now; a lower national insurance contribution for 20 million people; working families' tax credits in October of this year which will save £24 a week for 1.5 million families; and the 22 per cent. basic rate next year. That is the perception which the Government intended to give and have given. I believe that it will be reflected in public opinion in the future.

I turn now to a debate on the Budget. I shall have to cut it short. This is a Budget about economic stability. We inherited a situation of rapidly rising inflation, with unsustainable levels of public borrowing. We took tough decisions in 1997-98. We took the control of short-term monetary policy outside political control; and we set public finances on a stable footing. They are all witness, as the Treasury Select Committee agreed, to a particularly tight fiscal stance. So we have inflation under control. It is on target. We have interest rates under control. The peak over the past two years has been 7.5 per cent. compared with figures of 15 per cent. for a whole year in previous economic cycles. Long-term interest rates are now the lowest for 40 years. The mortgage rate is the lowest for 33 years.

The noble Lord, Lord Skidelsky, made great play of the Budget deficits. We inherited a Budget deficit of £28 billion. We now have a Budget surplus of £1 billion. The noble Lord, Lord Higgins, questioned our spending controls. The expectation for this Parliament is real growth of 1.5 per cent. per annum in spending compared with 2.75 per cent. in the former Parliament. We have 400,000 extra jobs since the election. Youth unemployment has declined by 57 per cent. Long-term unemployment has been cut in half.

In a situation in which a quarter of the world is in recession, we have been relatively stable in an uncertain world. I accept all that has been said by the noble Lords, Lord Higgins and Lord Selsdon, and the noble Baroness, Lady Platt, and others about manufacturing. However, manufacturing is not in recession--or if it has been it was for only a short time. There is already an improvement in business expectation surveys. The contrast we must make is with the early 1990s when manufacturing output declined by 7 per cent. and investment by 28 per cent. and 1 million jobs were lost in manufacturing.

The Budget supports the monetary policy. The Monetary Policy Committee has found it possible to loosen the policy because we have locked in the fiscal tightening. We have been able to give a £6 billion boost as the economy moves below trend and we have been able to allocate an additional £2 billion of public investment. During the next five years, we expect a

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surplus of £34 billion, compared with a £149 billion deficit under the Conservative government during the time in which they doubled the national debt.

I accept what has been said about the need for support for productivity and enterprise. We are below our American and European competitors. However, in helping investment and innovation we are reducing corporation tax by 3 pence to 30 per cent. The small company's rate will be reduced from 23 per cent. to 20 per cent. There will be a 10 per cent. starting rate for 270,000 firms. As regards innovation, we have the R&D tax credit for new and small businesses which will underwrite almost one-third of their research and development costs. The Small Business Service will provide detailed support for small businesses.

The noble Baroness, Lady Platt, was right about the need for high technology training. That is an important part of the lifelong learning programmes of the Department for Education and Employment.

I refer to the environment only because it has arisen as an issue in relation to road haulage. However, I should like to speak at length on the Kyoto targets and the plans to implement the Marshall Report. However, I cannot accept the arguments used by the hauliers about the road haulage industry. It is true that in line with our existing commitments we have increased the price of diesel fuel by 6p a litre, but we have increased the differential for ultra low sulphur diesel. The changes we have made to vehicle excise duty very much favour the vehicles which are cleaner and cause less damage to the roads. Our policies on vehicle excise duty and fuel duty are driven by business concerns, but they are also driven by environmental concerns. Anyone who examines the evidence objectively will agree that the overall tax burden, taking into account labour costs and corporation tax, is very favourable in this country compared with European countries.

As regards families, it is true that we are replacing the married couples' allowance. The noble Baroness, Lady Hogg, made that point. Of course, the allowance was made at the same rate to all married couples, including lone parents and cohabiting parents. It could be made twice to a single couple in the year that they separated. The new children's tax credit is more generous and will be better focused where it is needed for children. Under the MCA the claimant had to be a man; now the claimant can be either a man or a woman. Before leaving that matter, I should like to point out that the social security budget is not out of control. It will rise at less than half the rate of the previous government's, and it will not be spent on subsidising unemployment but on improving the conditions of life of poorer families in our society.

As I race through my speech, I turn to our provision for the elderly. There is a £1 billion pensioner package in the budget. Minimum income guarantees will be uprated in line with earnings, not with prices. The winter fuel allowance has been quintupled. Single pensioners will not pay tax below £5,720. A typical pensioner household will be better off by £240 a year.

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Of course one of the most important things is encouraging work rather than dependency. In that sphere, we are abolishing the national insurance entry fee and aligning the lower earnings limit with income tax. That is an enormously important change because it means there will be no income tax or national insurance paid on the first £87 a week. In October, we are introducing the working families' tax credit which means that families with a full-time earner will have a minimum income of £200 a week. That is £10,000 a year. There will be no taxation on earnings up to £235 a week.

I shall skip over the provisions relating to the over 50s, although I know that they are of interest to your Lordships, because I want to say a few words about public services. It is true that there is a huge need, in particular, for capital expenditure on public services. The noble Baroness, Lady Sharp, made that point very effectively. We no longer have the rule that £1 of revenue and £1 of capital equal £2. For that reason, we have been able to set up the capital modernisation fund which, among many other things, will apply to accident and emergency units and the hospital building programme, which is the largest since the war. We have allocated £0.4 billion for modern technology for the National Health Service. I could go on.

Further, as regards revenue expenditure, noble Lords do not appear to like us talking about the £19 billion provided over three years, but that will be used to provide smaller class sizes, more nursery education, better pay for teachers, and literacy and numeracy training referred to by the noble Baroness, Lady Sharp, and for vocational training referred to by the noble Lord, Lord Dahrendorf.

Yes, I shall refer again to the £21 billion for the health service because it means, among other things, 7,000 new doctors and 15,000 more nurses, and in conditions of fair pay for nurses.

I do not apologise for this being a Budget debate rather than a taxation debate. There are one or two further points to which I must reply, but given the time I have taken I must do so in writing. However, I say to the noble Earl, Lord Northesk, that we are in no way ashamed of having increased the price of 20 cigarettes by 57.5p. When we are accused of suffering from diminishing returns I point out that there are two kinds of diminishing returns. One is losing revenue, the other is stopping people smoking. If we are doing the latter we are happy to put up with diminishing returns. I hasten to say that diminishing returns do not mean diminishing revenue.

The VAT threshold was mentioned by the noble Lord, Lord Marlesford. Customs and Excise carried out a consultation exercise last year and the conclusion was that this worked both ways. If you are just below the threshold you do not like the fact that you cannot cover the tax on your raw materials; if you are above the threshold you can recover it, but you have to charge your customers. I do not believe that there is any particular problem with the VAT threshold.

To the extent that this has been a Budget debate, the Government have been grateful for the opportunity to respond to it. To the extent that it has been a debate

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about rational taxation, I personally have been pleased to hear it although I cannot claim to have made a positive contribution. I am grateful to all noble Lords who have taken part.

5.29 p.m.

Lord Skidelsky: My Lords, I count it as something of a success for our debate to have reduced the Minister to such evident distress that he had to read out the bulk of his prepared speech. I enjoyed the first part of his remarks a great deal more than those he rushed through.

I have always preferred high quality in debate to a large quantity of speakers. We have been exceptionally fortunate today in both respects. As the noble Lord, Lord McIntosh of Haringey, said, the debate has covered philosophical, technical and special topics. All have been relevant to the Motion. All who took part have been highly knowledgeable, and I am extremely grateful for their contributions. I beg leave to withdraw my Motion for Papers.